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The easiest way to determine if a factor is external or internal is to take away the company, organization,
or individual and see if the factor still exists. Internal factors such as strengths and weaknesses are
specific to a company or individual, whereas external factors such as opportunities and threats affect
multiple individuals and organizations in the marketplace. For example, if you are doing a situation
analysis on PepsiCo and are looking at the weak economy, take PepsiCo out of the picture and see what
factors remain. If the factor—the weak economy—is still there, it is an external factor. Even if PepsiCo
hadn’t been around in 2008–2009, the weak economy reduced consumer spending and affected a lot of
companies.
Assessing the Internal Environment
As we have indicated, when an organization evaluates which factors are its strengths and weaknesses, it is
assessing its internal environment. Once companies determine their strengths, they can use those
strengths to capitalize on opportunities and develop their competitive advantage. For example, strengths
for PepsiCo are what are called “mega” brands, or brands that individually generate over $1 billion in
sales. [1] These brands are also designed to contribute to PepsiCo’s environmental and social
responsibilities.
PepsiCo’s brand awareness, profitability, and strong presence in global markets are also strengths.
Especially in foreign markets, the loyalty of a firm’s employees can be a major strength, which can provide